WONG KA CHUN v. CENTRAL LINK CREDIT LTD AND ANOTHER

HCMP 1321/2021

[2021] HKCFI 2846

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1321 OF 2021

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DECISION

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Introduction

1.  On 9 September 2021, the plaintiff commenced the present proceedings by an originating summons.  The plaintiff is the registered owner of the property known as Unit No 2, 10^th Floor, On Kwai Building (Block C of Whampoa Estate), No 7 Man Tai Street, Kowloon (“the Whampoa Property”).  On 10 August 2021, the 1^st defendant delivered a loan agreement dated 2 March 2021 entered into between the plaintiff as borrower and the 1^st defendant as lender (“the Loan Agreement”) to the Land Registry for registration.  The Loan Agreement now appears as a “deed pending registration” in the Land Registry in respect of the Whampoa Property.

2.  In these proceedings, in essence, the plaintiff seeks against the 1^st defendant and its solicitors, the 2^nd defendant, for a declaration that the Loan Agreement is not registrable against the Whampoa Property and relief to the effect that it should be withdrawn from registration.  The plaintiff also claims damages to be assessed.

3.  On 14 September 2021, the 1^st defendant took out an inter partes summons in these proceedings seeking the following injunction:

“The Plaintiff be restrained until further order of the Court in the meantime, whether by herself or by her nominees, agents or servants or any of them or otherwise howsoever from transferring, selling, disposing of, charging, encumbering, or in any way dealing with [the Whampoa Property]”

4.  The 1^st defendant also seeks a disclosure order in relation to the Whampoa Property, including whether it has been transferred to any third party, whether it has been pledged and the current whereabouts of the sum of $590,000 which is the deposit which has been received by the plaintiff under a sale and purchase agreement dated 16 July 2021 entered in respect of the property (“the S&P Agreement”). 

5.  This is the first summons which I have to deal with this morning.

6.  Separately, on 15 September 2021, the plaintiff took out an inter partes summons seeking the same relief as that set out in the originating summons.  The latter is returnable before Lisa Wong J on 25 October 2021.  Ms Lorinda Lau, counsel for the plaintiff, asked the court to deal with the substantive relief today (save for the damages relief).  This is because under the S&P Agreement, the plaintiff was obliged to complete the sale of the Whampoa Property on 31 August 2021.  However, owing to the purported registration of the Loan Agreement against the property, the completion did not proceed as scheduled.  The plaintiff has agreed with the purchaser to postpone completion by one month.  Hence there is urgency for the court to grant the relief in the originating summons before the return date.

7.  I am satisfied that the relief, if properly justified, should be granted urgently in view of the upcoming completion date. Mr Jeremy Cheung, counsel for the defendants, also confirmed that the defendants do not need to file any further evidence for the plaintiff’s summons.  I shall therefore deal with the plaintiff’s summons today.

Factual background

8.  It is not in dispute that under the Loan Agreement, the 1^st defendant lent to the plaintiff a sum of $250,000 on 2 March 2021, with interest accruing at 58% p.a.  The principal and interest are payable in five instalments, with the first instalment due on 17 March 2021 and the last one due on 17 May 2021.  Under the express terms of the Loan Agreement, no security is given by the plaintiff.  It is indisputable that it is a pure personal loan advanced to the plaintiff in the sense that he has at no time signed any mortgage or charge document creating any security interest in any real property in favour of the 1^st defendant.

9.  It is also not in dispute that the plaintiff has not made repayment as provided for in the Loan Agreement.  He made a series of payments during the period from 19 March to 10 August 2021.  According to the 1^st defendant’s records, the sum paid amounted to $143,900 in total.  The defendants say that as of 10 September 2021, the plaintiff was indebted to the 1^st defendant in the sum of $124,515.

The 1^st defendant’s summons

10.  Before the hearing commenced, the 1^st defendant handed up a draft injunction order, which is in totally different wording from the injunction sought in its summons.

11.  At the hearing, Mr Cheung told the court that when the summons was taken out, the intention was to seek a proprietary injunction as per the summons.  However, after reviewing the latest evidence, the 1^st defendant would now seek a mareva injunction instead.  In essence, the 1^st defendant does not seek to prohibit the plaintiff from completing the sale of the Whampoa Property.  Instead, the 1^st defendant now seeks a mareva injunction over the proceeds of sale, if any.

12.  In my view, it is a clear case where neither the proprietary injunction nor the mareva injunction sought by the 1^st defendant should be granted.

13.  I shall start my analysis with the observation that the 1^st defendant’s application is not properly constituted in the first place.

14.  It is plain that the 1^st defendant intends to seek the relief on an interlocutory basis.  However, on paper, the 1^st defendant has failed to spell out precisely what its substantive claim or cause of action against the plaintiff is.  Normally, where a party seeks interlocutory injunctive relief on an urgent basis, he should issue a writ with at least a general indorsement stating the cause of action.  Where time does not allow, the plaintiff should at least produce a draft writ: see Practice Direction 11.1, section B.  It is in respect of the cause of action as identified that the plaintiff seeks the injunctive relief which purpose is, generally speaking, to protect his position pending trial.

15.  In the present case where the plaintiff has already issued an originating summons, I would think that it is open to the 1^st defendant to make a counterclaim in these proceedings pursuant to Order 28, rule 7(1).  And, in that counterclaim, the 1^st defendant should spell out precisely its cause of action against the plaintiff.

16.  Here, the 1^st defendant has done none of the above.

17.  In his written submissions lodged on behalf of the 1^st defendant, Mr Cheung has not set out in clear terms what substantive claim the 1^st defendant will be pursuing against the plaintiff.  I was not able to tell from a review of the 1^st defendant’s affirmations and Mr Cheung’s written submissions whether the injunction sought is based on a proprietary right or whether the 1^st defendant is in effect asking for a mareva injunction in respect of a debt claim.  (In the written submissions, there is initially a proposition that the 1^st defendant has an equitable charge over the Whampoa Property.  Towards the end of the written submissions, there is a contention that the plaintiff was dissipating his assets to dodge his payment obligation under the Loan Agreement.)

18.  In the absence of a proper identification of the substantive cause of action to be pursued by the 1^st defendant against the plaintiff, I felt unable to properly assess the application for the interlocutory relief.  For instance, where one considers whether a serious issue to be tried is present, one needs to know the subject-matter of the issue in the first place.  At the hearing today, Mr Cheung accepted that there is no proper identification of the 1^st defendant’s cause of action in any written form.  Orally, he submitted that it would pursue the following causes of action:

(1)   Recovery of debt under the Loan Agreement;

(2)   Proprietary claim against the Whampoa Property; and

(3)   Money had and received.

19.  Insofar as the 1^st defendant is contending that it has a proprietary claim over the Whampoa Property, that contention is plainly untenable even on its own evidence.

20.  The Loan Agreement contained no provision providing for the creation of any security interest in the Whampoa Property in favour of the 1^st defendant.

21.  The 1^st defendant instead relies on a previous incident in relation to another property in Bulkeley Street, Kowloon which the plaintiff used to own (“the Kowloon Property”) to say that an equitable charge was created in the Whampoa Property.

22.  The plaintiff was the registered owner of the Kowloon Property.  He entered into an agreement for its sale on 30 April 2021.  At that time, the plaintiff was already in default of the of Loan Agreement.  In view of that, the 1^st defendant delivered the Loan Agreement to the Land Registry for registration against the Kowloon Property on 3 July 2021.  On 28 July 2021, the plaintiff requested the 1^st defendant to remove the registration.  In return, the plaintiff undertook to discharge the outstanding amount under the Loan Agreement by weekly instalments.  In reliance of that undertaking, the 1^st defendant says it caused registration of the Loan Agreement to be removed.  The plaintiff was therefore able to complete the sale of the Kowloon Property on 6 August 2021 as scheduled.  However, the plaintiff did not abide by his undertaking.  No payment was made by him after 10 August 2021.  Therefore, in order to protect its interest, on 10 August 2021, the 1^st defendant attempted to register the Loan Agreement against the Whampoa Property at the Land Registry.

23.  Against the above chronology of events, Mr Cheung made the following submissions:

“21. By reason of the registration (followed by the deregistration) of the CONTRACT re [the Kowloon Property], in extenso, the encumbering of [the Whampoa Property] constitutes an equitable charge.

22. An equitable charge is created when some specific property is appropriated to the discharge of some debt or obligation. No special form of words is required. The explicit acknowledgement of [the plaintiff] that [the Kowloon Property] then stood charged with the repayment of the outstanding amount … created an equitable charge over [the Kowloon Property] in favour of [the 1^st defendant].

…

23 [The 1^st defendant] respectfully submits that the events occurred since the default of repaying the LOAN in full as scheduled on 17 May 2021 leading to the registration of the [Loan Agreement] on 3 July 2021 re [the Kowloon Property] and thereafter followed by the deregistration of the same on 28 July 2021 irrefutably inferred an acknowledgement of [the plaintiff] that either asset stood charged with the full settlement of the LOAN.”

24.  I do not accept these submissions.  Whatever happened in relation to the Kowloon Property cannot possibly have any effect, whether submitted by Mr Cheung or otherwise, on the Whampoa Property.  These submissions are simply not understood.

25.  On the 1^st defendant’s own evidence, the plaintiff has said nothing and done nothing which would have the effect of creating any security in or encumbrance over the Whampoa Property in favour of the 1^st defendant.

26.  Hence, insofar as the 1^st defendant is claiming that it has a proprietary interest in the Whampoa Property, that is not made out on its own evidence and the claim can be rejected outright.  There is no serious issue to be tried in this regard.  Any injunction sought on the basis of a proprietary right must be refused.

27.  As regards the cause of action based on debt, there is clearly a serious issue to be tried.  However, I am not satisfied that the 1^st defendant has demonstrated a real risk of dissipation on the evidence.

28.  The starting point here is that when the loan was advanced to the plaintiff, the 1^st defendant did not ask for any security.  The plaintiff was then the owner of the two real properties.  He should be quite free to deal with them as he wishes, including selling them. On the evidence before me, that would appear to be what had happened.  Both properties are subject to multiple mortgages.  The fact that the plaintiff had chosen to sell them is no proof of risk of dissipation for mareva purposes.  It is plainly arguable that he was doing so in the usual or ordinary course of business.

29.  Mr Cheung relied on the evidence that, first, the plaintiff reneged on the undertaking given on 28 July 2021 and, second, the plaintiff did not make any substantial payment even after the completion of the Kowloon Property, when he was expected to have received the proceeds of sale. In the circumstances, Mr Cheung submitted that the plaintiff is plainly trying to avoid his payment obligation.

30.  It must be borne in mind that mareva injunctions are a drastic remedy which should not be lightly granted.  There must be shown, with cogent evidence, a risk of dissipation such that the plaintiff would suffer the injustice of having an empty judgment even if he succeeds after trial.  Where, as in here, the evidence relied on by the 1^st defendant is simply that the plaintiff has failed to pay the debt and that he has sold his two real properties which however appear to be heavily mortgaged and over which the 1^st defendant has no claim, the high threshold is not met.  As I said just now, it is plainly arguable that the plaintiff has just been going about his own business in the usual way.  The evidence is simply not cogent enough.

31.  In any event, the evidence, which comprises confirmation letters from the various mortgagee banks’ solicitors, shows that upon completion, there would not be any surplus left after all the mortgages over the Whampoa property are discharged.  As such, there is clearly no risk of dissipation of assets, as there is no asset to be dissipated in the first place.  I therefore decline to grant the mareva injunction. 

32.  I dismiss the 1^st defendant’s summons.  Mr Cheung agreed that in that event, costs should follow the event. I order that the plaintiff should have costs of the summons. 

The plaintiff’s summons

33.  As discussed above, the Loan Agreement set out the terms on which a personal loan was advanced by the 1^st defendant to the plaintiff.  The loan is unsecured.  The agreement does not create any interest in land.  It does not affect land.  As such, it is not registrable. It is unjustified for the 1^st defendant, with the assistance of the 2^nd defendant, to attempt to register it at the Land Registry against the Whampoa Property.

34.  I follow the approach in Wong Kum Chi v Lee Tit Ying [2003] 1 HKLRD 594 at paras 16 and 17 and Re Yee Tsim Choi HCMP 2850/2015, 30 March 2016 at paras 8 and 11 and grant a declaration that the Loan Agreement is not an instrument registrable under the Land Registration Ordinance against the Whampoa Property.  I also order that it be removed from the Land Registry, including any reference to it as a “deed pending registration”.

35.  I further order that both the 1^st and 2^nd defendants should bear the plaintiff’s costs of the summons. The 2^nd defendant has clearly played a part in the wrongful (attempted) registration of the Loan Agreement.  There is no reason why it should not bear costs together with the 1^st defendant.

36.  In relation to the plaintiff’s summons, I grant costs on an indemnity case given that it is a plainly unjustifiable act on the part of the defendants.  See the similar costs orders made in Wong Kum Chi and Yee Tsim Choi.

37.  In relation to the 1^st defendant’s summons, costs should be assessed on a party-and-party basis.

38.  The plaintiff has just handed up two statements of costs.  I direct that the defendants do lodge and serve their lists of objections, if any, by 4pm on 23 September 2021.  The costs will be summarily assessed on the papers after the deadline.